Getting the most out of an offset mortgage - LDN Finance

Getting the most out of an offset mortgage

With higher interest and mortgage rates now compared to the recent years of historically low rates, we are seeing a significant increase in enquiries and application for offset mortgages.

An offset mortgage is a type of mortgage where your savings are offset against your mortgage balance, therefore reducing the interest you pay. The idea is that the balance of your savings is subtracted from the outstanding mortgage, and you only pay interest on the remaining amount.

This can result in substantial savings over time, plus borrowers have the added benefit of having access to their savings at any time. Additionally, offset mortgages allow for flexible repayment terms and can even be used as part of a retirement planning strategy. With all these advantages combined, it’s no wonder why more and more people are turning to offset mortgages for their financial needs.

Getting the most out of an offset mortgage

Here are some strategies to maximise the benefits of an offset mortgage:

Maintain a higher savings balance:

The more savings you have, the greater the offset against your mortgage balance. Aim to keep a healthy savings balance to minimise the interest you pay on your mortgage.

Consistent contributions:

Try regularly contributing to your savings account. Consistent contributions can help maintain a higher average balance, increasing the offset against your mortgage.

Use windfalls and bonuses to your savings advantage:

If you receive unexpected windfalls, such as tax refunds, bonuses, or gifts, consider putting them into your offset savings account. This can have a significant impact on reducing your mortgage interest.

Emergency fund in the offset account:

Consider keeping your emergency fund in the offset savings account. While it’s readily accessible, it still helps reduce your mortgage interest when not in use.

Link multiple accounts:

Some lenders allow you to link multiple savings accounts to your mortgage. By doing so, you can segregate your savings for specific purposes while still benefiting from the offset arrangement.

Minimise debt elsewhere:

Use any additional funds to pay down other high-interest debts before increasing your offset savings. While offsetting mortgage interest is beneficial, it’s also essential to manage overall debt effectively.

Regularly review your finances:

Periodically review your finances and assess whether you could allocate additional funds to your offset savings. Changes in income, expenses, or financial goals may warrant adjustments.

Optimise your cash flow:

Efficiently manage your cash flow to ensure that you keep your savings balance as high as possible. This may involve budgeting, reducing unnecessary expenses, and finding ways to increase your income.

Consider making overpayments on the mortgage:

Some offset mortgage products allow you to make overpayments, typically up to 10% without incurring fees. While this doesn’t directly increase your savings offset, it can help you pay down the mortgage principal faster, resulting in long-term interest savings.

Check mortgage rates with a mortgage adviser:

Keep an eye on mortgage rates and consider speaking to an adviser to  renegotiate your mortgage terms if more favourable rates become available. Like most mortgages, offset mortgages are typically available on an initial 2, 3 or 5 year fixed or tracker rate period. This can enhance the effectiveness of your offset strategy.

Remember, the effectiveness of an offset mortgage depends on various factors, including interest rates, your savings habits, and the terms of your mortgage. To ensure you can benefit from competitive rates, speak to LDN Finance about your options, including tailoring a strategy that aligns with your specific financial goals and circumstances.